ANNUAL FINANCIAL REPORT with Supplementary Information FOR THE YEAR ENDED JUNE 30, 2016
TABLE OF CONTENTS JUNE 30, 2016 Page Number Independent Auditor's Report 1 Management s Discussion and Analysis 3 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position 8 Statement of Activities 9 Fund Financial Statements: Balance Sheet - Governmental Funds 11 Reconciliation of the Balance Sheet for Governmental Funds to the Statement of Net Position 12 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds 13 Reconciliation of the Statement of Revenues, Expenditures, and Change in Fund Balances of Governmental Funds to the Statement of Activities 14 Statement of Net Position - Proprietary Funds 15 Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Funds 16 Statement of Cash Flows - Proprietary Funds 17 Notes to Financial Statements 18 Required Supplementary Information: Budgetary Comparison Information: Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual - General Fund 46 Major Street Fund 48 Street Fund 49 Pension System Schedules: Schedule of Changes in Net Pension Liability and Related Ratios 50 Schedule of City Contributions 51 Supplementary Information: Combining and Individual Fund Statements and Schedules: Nonmajor Governmental Funds - Combining Balance Sheet 52 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 54 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual 56
TABLE OF CONTENTS JUNE 30, 2016 Page Number Supplementary Information - (cont d): Internal Service Funds - Combining Statement of Net Position 58 Combining Statement of Revenues, Expenses, and Changes in Net Position 59 Combining Statement of Cash Flows 60 Component Unit (Downtown Development Authority): Balance Sheet/Statement of Net Position 61 Reconciliation of the Balance Sheet for Governmental (Operating) Fund to the Statement of Net Position 62 Statement of Revenues, Expenditures, and Changes in Fund Balance/ Statement of Activities 63 Reconciliation of the Statement of Revenues, Expenditures, and Change in Fund Balances of Governmental (Operating) Fund to the Statement of Activities 63 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual 64
INDEPENDENT AUDITOR S REPORT To the Honorable Mayor and Members of the City Council City of Durand Durand, Michigan Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Durand, Michigan (the City ) as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the City s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. - 1 -
Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Durand, Michigan, as of June 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, budgetary comparison information, and pension system schedules, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City s basic financial statements. The nonmajor governmental fund combining and individual statements and schedules and component unit statements, as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 21, 2016 on our consideration of the City s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Durand s internal control over financial reporting and compliance. November 21, 2016-2 - Certified Public Accountants
CITY OF DURAND Management s Discussion and Analysis OVERVIEW OF THE FINANCIAL STATEMENTS The City of Durand s (the City ) 2016 annual report is presented in conformity with the requirements of Governmental Accounting Standards Board Statement No. 34. This annual report consists of four parts management s discussion and analysis, the basic financial statements, required supplementary information, and other supplemental information, which presents combining statements for nonmajor governmental funds and component unit information. The basic financial statements include two kinds of statements that present different views of the City. The first two statements are government-wide financial statements that provide both long-term and short-term information about the City s overall financial status. The remaining statements are fund financial statements that focus on individual parts of the City s government, reporting the City s operations in more detail than the government-wide statements. Government-wide Financial Statements The government-wide statements report information about the City as a whole using accounting methods similar to those used by private-sector companies. The statement of net position presents information on all of the City s assets, deferred outflows of resources, liabilities, and deferred inflows of resources, with the differences reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future periods. The government-wide financial statements of the City are divided into three categories: Governmental activities - most of the City s basic services such as the police, fire, public works, parks and recreation, general administration, and debt retirement are included. Property taxes, stateshared revenues, and charges for services provide the funding. Business-type activities - the City charges fees to customers to help cover the costs of certain services it provides. The City s water, wastewater, and refuse operations are treated as business-type activities. Component unit - although separate, the Downtown Development Authority is important because the City is financially accountable for it. Fund Financial Statements The fund financial statements provide more detailed information about the City s most significant funds, not the City as a whole. Funds are accounting devices that the City uses to keep track of specific sources of funding and spending for particular purposes. Some funds are required by State law and/or by bond covenants. The City Council establishes other funds to control and manage money for particular purposes. - 3 -
The City has two types of funds: Governmental funds - Most of the City s basic services are included in governmental funds, which focus on how cash and other financial assets can readily be converted to cash flow in and out, and the balances left at year end that are available for spending. The governmental fund statements provide a detailed short-term view that helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the City s programs. For 2016, the City had 8 governmental funds. Proprietary Funds - Proprietary funds use the accrual basis of accounting, which is the same basis used by the private businesses. The City maintains two different types of proprietary funds. Enterprise Funds - are used to report services for which the City charges customers a fee for those services. The City has three enterprise funds, the Water, Wastewater, and Refuse Service Funds. Internal Service Funds - reports activities that provide services and supplies to other City programs. The City utilizes two internal service funds an Equipment Revolving and an Employee Benefit Fund. NOTES TO THE FINANCIAL STATEMENTS The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS The City has combined total net position of $14,801,084. This is an increase of $274,191 over 2015. Governmental activities comprise $6,414,946, and business-type activities make up $8,386,138 of the total net position. In a condensed format, the table below shows net position as of June 30, 2016 and 2015. Condensed Statement of Net Position Governmental Activities Business-type Activities 2016 2015 2016 2015 Assets Current assets $ 2,097,921 $ 1,536,330 $ 2,587,248 $ 2,587,830 Restricted assets - - 121,421 35,224 Capital assets 8,544,863 8,211,587 14,454,218 8,970,373 Total assets 10,642,784 9,748,917 17,162,887 11,593,427 Deferred Outflows of Resources 492,204 75,819 138,828 21,384 Liabilities Current liabilities 106,545 94,290 1,158,909 1,067,009 Non-current liabilities 4,613,497 3,648,925 7,756,668 2,102,430 Total liabilities 4,720,042 3,743,215 8,915,577 3,169,439 Net Position Net investment in capital assets 7,726,203 7,782,546 7,540,660 7,481,039 Restricted 807,986 466,102 101,197 15,000 Unrestricted ( 2,119,243) ( 2,167,127) 744,281 949,333 Total net position $ 6,414,946 $ 6,081,521 $ 8,386,138 $ 8,445,372-4 -
The City s governmental activities experienced an increase in net position of $333,425. The business-type activities experienced a decrease in net position of $59,234. The following table shows the changes in net position for 2016 and 2015: Condensed Statement of Activities Governmental Activities Business-type Activities 2016 2015 2016 2015 Revenue Program Revenue Charges for services $ 149,247 $ 103,913 $ 1,847,828 $ 1,789,307 Operating grants and contributions 309,858 264,622 83,431 - Capital grants and contributions 247,177 61,200 28,204 524,633 General Revenue Property taxes 1,466,298 1,468,052 - - State-shared revenue 411,568 412,992 - - Franchise fees 46,341 45,680 - - Unrestricted investment earnings 11,095 11,555 460 170 Gain on sale of assets - - 296,000 - Transfers 268,351 ( 1,185) ( 268,351) 1,185 Total Revenue 2,909,935 2,366,829 1,987,572 2,315,295 Program Expenses General government 394,567 346,840 - - Public safety 919,716 804,446 - - Public works 950,182 881,992 - - Health & welfare 70,234 75,634 - - Recreation and culture 202,770 204,359 - - Community & economic development 10,194 9,310 - - Interest on long-term debt 28,847 33,828 - - Water supply system - - 784,556 737,276 Wastewater - - 1,063,297 843,253 Refuse services - - 198,953 193,972 Total Program Expenses 2,576,510 2,356,400 2,046,806 1,774,501 Change in Net Position $ 333,425 $ 10,429 $( 59,234) $ 540,794 Governmental Activities Revenues for governmental activities totaled $2,909,935 in 2016. Of this amount, approximately $1,466,298 or 50% of total revenue was received from taxes, followed by state-shared revenue of $411,568 or 14% of total revenue. Business-type Activities The City has three business-type activities, water, wastewater, and refuse operations. The City operates its own water and sewage treatment facility and contracts for refuse collections. The Wastewater fund had a net increase in net position of $2,095. The Water and Refuse Service funds had net decreases of $59,344 and $1,985, respectively. - 5 -
FINANCIAL ANALYSIS OF MAJOR FUNDS The General Fund ended 2016 with a fund balance of $708,872, of which $27,947 was nonspendable, $30,607 was restricted, $100,000 was committed, $73,195 was assigned, and the remaining amount of $477,123 was classified as unassigned. This is an increase of $116,248 from the prior year. The City s other major funds, the Major Street Fund and the Street Fund ended 2016 with fund balances of $186,990 and $360,826, respectively. This is an increase of $68,469 for the Major Street Fund and an increase of $235,914 in the Street Fund. BUDGETARY HIGHLIGHTS Over the course of the year, the City administration and City Council monitor the budget, and if necessary, amend the budget to take into account unanticipated events that occur during the year. During the year, the following significant amendments were made in the General Fund: Intergovernmental Revenue was increased from $428,000 to $566,300 as a result of the final allocation of the DIG grant funding. General Administrative Expenses were increased from $253,750 to $527,200 mainly as a result of the funding of the DIG grant for the West Parking Lot and Pathway Improvements Project. Parks and Recreation Expenses were increased from $71,325 to $143,350 mainly as a result of expected ballfield improvements and the continued development of the Veterans Park. Debt Service - Principal and Note Proceeds were both increased due to additional borrowing required to finish the West Parking Lot and Pathway Improvements Project. The only significant difference between the final budget and actual amounts was that Intergovernmental Revenue exceeded the budget by $78,652 as a result of the final allocation of the DIG grant funding. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets The City had $22,999,081 invested in capital assets for its governmental and business-type activities (net of accumulated depreciation) as of June 30, 2016. The investment in capital assets includes land, building and building improvements, infrastructure, machinery and equipment, vehicles, and water and sewer systems. During the year, the City added $6,693,692 of capital assets before taking into account depreciation. The City added $834,912 in capital assets to the governmental activities. Major additions included finishing the DIG Project, a new Vactor truck, outfitting the dump truck purchased in the prior year, and a new Ford F-350. The business-type activities added $5,858,780 mainly due to improvements to the wastewater and water supply systems, which includes the newly-completed West Parking Lot and Pathway Improvements Project and the ongoing USDA Rural Development Project for water and wastewater system improvements. Additional information on the City s capital assets can be found in Note 5 to the financial statements. Long-term Liabilities At June 30, 2016, the City had $8,561,946 in long-term liabilities, compared to $2,980,272 at June 30, 2015. The City added two new installment purchase agreements: one to finish the West Parking Lot and Pathway Improvements Project and the other for the purchase of a new Vactor truck. The City also drew down approximately $5,500,000 from USDA to continue to fund the project s water and wastewater system improvements. - 6 -
ECONOMIC FACTORS AND NEXT YEAR S BUDGETS AND RATES For fiscal 2016-17, the City Council adopted a General Fund budget with estimated revenues of $2,031,650 and expenditures of $2,104,845 and will use fund balance to cover the estimated shortfall of $73,195. CONTACTING THE CITY S MANAGEMENT This financial report is intended to provide our citizens, stakeholders, customers, and investors with a general overview of the City s finances and to show the City s accountability for the money it receives. If you have any questions about this report or need additional financial information, we invite you to contact the City of Durand administration at City Hall (989) 288-3113. - 7 -
BASIC FINANCIAL STATEMENTS
STATEMENT OF NET POSITION JUNE 30, 2016 Component Primary Government Unit Governmental Business Type Activities Activities Total DDA Assets: Cash and cash equivalents $ 1,601,429 $ 1,096,866 $ 2,698,295 $ 127,850 Receivables 435,748 1,435,030 1,870,778 - Prepaid expenses 53,070 12,907 65,977 133 Inventory 7,674 42,445 50,119 - Restricted assets Cash and cash equivalents - 121,421 121,421 - Capital assets (net of accumulated depreciation) Assets not being depreciated 1,694,914 7,075,663 8,770,577 60,000 Assets being depreciated 6,849,949 7,378,555 14,228,504 309,140 Total Assets 10,642,784 17,162,887 27,805,671 497,123 Deferred Outflows of Resources: Related to pension plan 492,204 138,828 631,032 - Liabilities: Payables and accrued liabilities 90,717 1,112,317 1,203,034 556 Accrued interest 15,828 25,342 41,170 5,103 Deposits - 21,250 21,250 - Non-current liabilities Compensated absences 41,096 3,632 44,728 - Net pension liability 1,697,329 478,734 2,176,063 - Net OPEB obligation 1,271,412 360,744 1,632,156 - Due within one year 375,950 249,000 624,950 45,000 Due in more than one year 1,227,710 6,664,558 7,892,268 705,000 Total Liabilities 4,720,042 8,915,577 13,635,619 755,659 Net Position: Net investment in capital assets 7,726,203 7,540,660 14,481,863 (1) 219,140 Restricted - Debt Service 23,621 75,000 98,621 - Capital Improvements - 26,197 26,197 - Streets 693,958-693,958 - Public Safety 59,800-59,800 - Other 30,607-30,607 6,104 Unrestricted (deficit) ( 2,119,243) 744,281 ( 589,962) ( 483,780) Total Net Position $ 6,414,946 $ 8,386,138 $ 14,801,084 $( 258,536) ( 138,828) ( 631,032) Differences HIDE - (1) The total investment in Capital Assets has been reduced by $785,000 for debt issued for Water and Sewer Capital, however the debt is being repaid by a tax levy. The accompanying notes are an integral part of these financial statements. - 8 -
STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 Function/Program Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions Primary Government Governmental activities: General Government $ 394,567 $ 81,000 $ - $ 229,600 Public Safety 919,716 54,834 5,106 - Public Works 950,182 4,428 304,752 - Health and Welfare 70,234 - - - Recreation and Cultural 202,770 8,985-17,577 Community and Economic Development 10,194 - - - Interest on Long Term Debt 28,847 - - - Total governmental activities 2,576,510 149,247 309,858 247,177 Business type activities: Water Supply System 784,556 725,212 - - Wastewater 1,063,297 925,648 83,431 28,204 Refuse Services 198,953 196,968 - - Total business type activities 2,046,806 1,847,828 83,431 28,204 Total Primary Government $ 4,623,316 $ 1,997,075 $ 393,289 $ 275,381 Component Unit Downtown Development Authority $ 73,809 $ 6,650 $ - $ 32,500 General revenues: Taxes Property taxes levied for general purposes Property taxes levied for streets Property taxes levied for debt purposes Property taxes levied for ambulance services Grants and contribution not restricted to specific programs Sales taxes Franchise fees Unrestricted investment income Gain on sale of assets Transfers in (out) Total general revenues Change in net position Net position at beginning of year Net position at end of year The accompanying notes are an integral part of these financial statements. - 9 -
Net (Expense) Revenue and Change in Net Position Primary Government Governmental Business Type Component Activities Activities Total Unit (DDA) $( 83,967) $ - $( 83,967) $ - ( 859,776) - ( 859,776) - ( 641,002) - ( 641,002) - ( 70,234) - ( 70,234) - ( 176,208) - ( 176,208) - ( 10,194) - ( 10,194) - ( 28,847) - ( 28,847) - ( 1,870,228) - ( 1,870,228) - - ( 59,344) ( 59,344) - - ( 26,014) ( 26,014) - - ( 1,985) ( 1,985) - - ( 87,343) ( 87,343) - ( 1,870,228) ( 87,343) ( 1,957,571) - - - - ( 34,659) 1,024,316-1,024,316 74,675 119,796-119,796-251,765-251,765-70,421-70,421-411,568-411,568-46,341-46,341-11,095 460 11,555 - - 296,000 296,000-268,351 ( 268,351) - - 2,203,653 28,109 2,231,762 74,675 333,425 ( 59,234) 274,191 40,016 6,081,521 8,445,372 14,526,893 ( 298,552) $ 6,414,946 $ 8,386,138 $ 14,801,084 $( 258,536) - 10 -
BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2016 Other Total Major Governmental Governmental General Street Street Funds Funds Assets: Cash and cash equivalents $ 357,945 $ 187,847 $ 360,826 $ 217,305 $ 1,123,923 Receivables - Accounts and interest 4,368-12,567 16,935 Due from other governmental units 349,602 29,003-32,495 411,100 Prepaids and deposits 27,947 - - 433 28,380 Inventory - 4,015-1,338 5,353 Total Assets $ 739,862 $ 220,865 $ 360,826 $ 264,138 $ 1,585,691 Liabilities: Accounts payable $ 19,287 $ 33,700 $ - $ 3,029 $ 56,016 Accrued liabilities 11,703 175-911 12,789 Total Liabilities 30,990 33,875-3,940 68,805 Deferred Inflows of Resources: Unavailable revenue - - - 2,219 2,219 Fund Balances: Nonspendable 27,947 4,015-1,771 33,733 Restricted 30,607 182,975 360,826 227,792 802,200 Committed 100,000 - - 28,416 128,416 Assigned 73,195 - - - 73,195 Unassigned 477,123 - - - 477,123 Total Fund Balances 708,872 186,990 360,826 257,979 1,514,667 Total Liabilities, Deferred Inflows of Resources, and Fund Balance $ 739,862 $ 220,865 $ 360,826 $ 264,138 $ 1,585,691 HIDE - - - - - The accompanying notes are an integral part of these financial statements. - 11 -
RECONCILIATION OF THE BALANCE SHEET FOR GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION JUNE 30, 2016 Fund Balances - total governmental funds $ 1,514,667 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the governmental funds. Capital assets 10,834,978 Accumulated depreciation ( 3,241,284) Other long term assets are not available to pay for current period expenditures and, therefore, are deferred in the governmental funds. Special assessments 2,219 Internal service funds are used by management to charge costs of the City's equipment revolving activities. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position. 879,581 Certain pension contributions and changes in pension plan liabilities are reported as deferred outflows of resources in the statement of net position, but are reported as expenditures in the governmental funds. 492,204 Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the governmental funds. Bonds/notes/installment purchase payable ( 1,093,450) Net pension liability ( 1,697,329) Net OPEB obligation ( 1,271,412) Accrued interest ( 5,228) Net Position of governmental activities $ 6,414,946 ( 6,414,946) The accompanying notes are an integral part of these financial statements. - 12 -
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2016 Other Total Major Governmental Governmental General Street Street Funds Funds Revenues: Taxes $ 1,066,402 $ - $ 119,796 $ 322,186 $ 1,508,384 Licenses and permits 46,341 - - 30,006 76,347 Intergovernmental - Federal/State 644,952 187,570-117,182 949,704 Charges for services 21,049 - - 14,275 35,324 Fines and forfeits 7,067 - - - 7,067 Interest and rent 40,641-387 79 41,107 Special assessments - - - 2,209 2,209 Other 19,223 - - - 19,223 Total Revenues 1,845,675 187,570 120,183 485,937 2,639,365 Expenditures: General Government 519,472 - - - 519,472 Public Safety 715,775 - - 32,901 748,676 Public Works 449,983 157,479 25,801 102,584 735,847 Health and Welfare - - - 64,481 64,481 Recreation and Cultural 141,778 - - - 141,778 Community and Economic Development 10,194 - - - 10,194 Debt Service - Principal 62,232 - - 232,000 294,232 Interest 9,308 - - 20,229 29,537 Total Expenditures 1,908,742 157,479 25,801 452,195 2,544,217 Revenues over (under) expenditures ( 63,067) 30,091 94,382 33,742 95,148 Other Financing Sources (Uses): Note proceeds 150,000 - - - 150,000 Transfers in from other funds 68,351 48,378 200,000 26,090 342,819 Transfers out to other funds ( 39,036) ( 10,000) ( 58,468) - ( 107,504) Total Other Financing Sources and Uses 179,315 38,378 141,532 26,090 385,315 Net change in Fund Balance 116,248 68,469 235,914 59,832 480,463 Fund Balances at beginning of year 592,624 118,521 124,912 198,147 1,034,204 Fund Balances at end of year $ 708,872 $ 186,990 $ 360,826 $ 257,979 $ 1,514,667 The accompanying notes are an integral part of these financial statements. - 13 -
RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES JUNE 30, 2016 Net change in fund balances - total governmental funds $ 480,463 Governmental funds report capital outlay as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital outlay 332,825 Depreciation expense ( 362,091) Revenue in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Special assessments 2,219 The issuance of long-term debt provides current financial resources to the governmental funds, while the repayment of the principal of long-term debt consumes the current resources of governmental funds. Neither transaction, however, has any effect on net position. Principal payments on long term liabilities 294,232 Decrease in accrued interest 690 Note proceeds ( 150,000) Some expenses reported in the statement of activities do not require the use of current financial resources, and therefore, are not reported as expenditures in the governmental funds. Increase in net pension liability ( 627,944) Increase in contributions made subsequent to the pension plan's measurement date 10,353 Change in deferred outflows/inflows of resources as a result of changes of assumptions, differences between expected and actual experience, projected and actual earnings, and proportionate share differences 406,032 Increase in net OPEB obligation ( 181,486) Internal service funds are used by management to charge costs of the City's equipment revolving activities. The net revenues (expenses) attributable to those funds is reported with governmental activities in the statement of net position. 128,132 Change in net position of governmental activities $ 333,425 The accompanying notes are an integral part of these financial statements. - 14 -
Assets: Current Assets: STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2016 Governmental Business Type Activities-Enterprise Funds Activities Internal Refuse Service Water Wastewater Service Total Funds Cash and cash equivalents $ 280,816 $ 782,805 $ 33,245 $ 1,096,866 $ 477,506 Receivable - accounts and interest 141,951 193,037 11,492 346,480 7,713 Due from other governmental units 331,465 757,085-1,088,550 - Inventory 41,312 1,133-42,445 2,321 Prepaid expenses 6,549 6,208 150 12,907 24,690 Total Current Assets 802,093 1,740,268 44,887 2,587,248 512,230 Restricted Assets: Cash and cash equivalents 24,564 96,857-121,421 - Capital Assets: Property, plant and equipment 8,025,978 14,844,681-22,870,659 2,817,047 Less - accumulated depreciation ( 2,905,142) ( 5,511,299) - ( 8,416,441) ( 1,865,878) Total Capital Assets, Net 5,120,836 9,333,382-14,454,218 951,169 Total Assets 5,947,493 11,170,507 44,887 17,162,887 1,463,399 Deferred Outflows of Resources: Related to pension plan 69,414 69,414-138,828 - Liabilities: Current Liabilities: Accounts payable 333,571 772,910-1,106,481 13,460 Accrued expenses 888 4,948-5,836 8,452 Accrued interest 7,897 17,445-25,342 10,600 Bonds/Notes payable (current portion) 33,000 216,000-249,000 65,134 Customer deposits 21,250 - - 21,250 - Total Current Liabilities 396,606 1,011,303-1,407,909 97,646 Long-Term Liabilities: Accrued vacation and sick 1,816 1,816-3,632 41,096 Net pension liability 239,367 239,367 478,734 - Net OPEB obligation 142,235 218,509-360,744 - Bonds/Notes payable (net of current portion) 1,735,465 4,929,093-6,664,558 445,076 Total Long-Term Liabilities 2,118,883 5,388,785-7,507,668 486,172 Total Liabilities 2,515,489 6,400,088-8,915,577 583,818 Net Position: Net investment in capital assets 3,352,371 4,188,289-7,540,660 440,959 Restricted 39,564 61,633-101,197 - Unrestricted 109,483 589,911 44,887 744,281 438,622 Total Net Position $ 3,501,418 $ 4,839,833 $ 44,887 $ 8,386,138 $ 879,581 The accompanying notes are an integral part of these financial statements. -15 -
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2016 Governmental Business Type Activities-Enterprise Funds Activities Internal Refuse Service Water Wastewater Service Total Funds Operating Revenues: Charges for services $ 702,443 $ 898,570 $ 190,462 $ 1,791,475 $ 873,876 Intergovernmental - 83,431-83,431 - Other 22,769 27,078 6,506 56,353 27,233 Total Operating Revenues 725,212 1,009,079 196,968 1,931,259 901,109 Operating Expenses: Personal services 220,401 289,702-510,103 546,325 Administrative expenses 163,000 163,000 40,000 366,000 40,000 Supplies and postage 24,564 39,063 2,253 65,880 36,177 Other services 151,297 227,972 156,700 535,969 112,511 Equipment rental 45,716 51,262-96,978 - Depreciation 151,128 219,807-370,935 133,673 Total Operating Expenses 756,106 990,806 198,953 1,945,865 868,686 Operating Income (Loss) ( 30,894) 18,273 ( 1,985) ( 14,606) 32,423 Non-Operating Revenues (Expenses): Gain on sale of assets - 296,000-296,000 75,346 Interest income - 460-460 151 Interest expense ( 28,450) ( 72,491) - ( 100,941) ( 12,824) Total Non-Operating Revenues (Expenses) ( 28,450) 223,969-195,519 62,673 Net Income (Loss) Before Capital Contributions and Transfers ( 59,344) 242,242 ( 1,985) 180,913 95,096 Capital Contributions - 28,204-28,204 - Net Income (Loss) before transfers ( 59,344) 270,446 ( 1,985) 209,117 95,096 Other Financing Sources (Uses): Transfers in - - - - 33,036 Transfers out - ( 268,351) - ( 268,351) - Total Other Financing Sources (Uses) - ( 268,351) - ( 268,351) 33,036 Change in Net Position ( 59,344) 2,095 ( 1,985) ( 59,234) 128,132 Net Position at beginning of year 3,560,762 4,837,738 46,872 8,445,372 751,449 Net Position at end of year $ 3,501,418 $ 4,839,833 $ 44,887 $ 8,386,138 $ 879,581 The accompanying notes are an integral part of these financial statements. - 16 -
STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2016 Governmental Business Type Activities-Enterprise Funds Activities Internal Refuse Service Water Wastewater Service Total Funds Cash Flows From Operating Activities: Cash receipts from customers $ 722,969 $ 925,575 $ 197,306 $ 1,845,850 $ 25,760 Cash receipts (payments) from interfund services ( 208,716) ( 214,262) ( 40,000) ( 462,978) 833,876 Cash payments to suppliers ( 143,646) ( 90,484) ( 158,943) ( 393,073) ( 635,399) Cash payments to employees ( 201,549) ( 264,991) - ( 466,540) ( 54,842) Net Cash Provided by (Used in) Operating Activities 169,058 355,838 ( 1,637) 523,259 169,395 Cash Flows From Capital and Related Financing Activities: Bond/Note proceeds 1,307,991 3,814,000-5,121,991 328,548 Bond/Note payments ( 31,991) ( 217,000) - ( 248,991) ( 27,697) Capital grant proceeds - 445,777 445,777 - Interest paid on long term debt ( 20,553) ( 56,773) - ( 77,326) ( 5,338) Transfers for capital purposes - ( 268,351) - ( 268,351) 33,036 Proceeds from sale of capital assets - 300,000-300,000 82,218 Acquisition of capital assets ( 1,460,892) ( 4,397,888) - ( 5,858,780) ( 502,087) Net Cash Used in Capital and Related Financing Activities ( 205,445) ( 380,235) - ( 585,680) ( 91,320) Cash Flows From Investing Activities: Interest earned - 460-460 151 Net Increase (Decrease) in Cash and Cash Equivalents ( 36,387) ( 23,937) ( 1,637) ( 61,961) 78,226 Cash and cash equivalents at beginning of year 341,767 903,599 34,882 1,280,248 399,280 Cash and cash equivalents at end of year $ 305,380 $ 879,662 $ 33,245 $ 1,218,287 $ 477,506 Reconciliation of Net Income (Loss) to $ - $ 33,245 $ 1,218,287 $ 477,506 Net Cash Provided By Operating Activities: $( 879,662) $ - $ - Operating income (loss) for the year $( 30,894) $ 18,273 $( 1,985) $( 14,606) $ 32,423 Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities - Depreciation 151,128 219,807-370,935 133,673 Change in assets and liabilities: Receivable ( 2,543) ( 73) 338 ( 2,278) ( 1,473) Prepaid and deposits ( 65) ( 338) 10 ( 393) ( 9,140) Inventory ( 10,371) ( 583) - ( 10,954) 76 Deferred outflows of resources ( 58,722) ( 58,722) - ( 117,444) - Accounts payable/accrued expenses 120,525 177,474-297,999 13,836 Net Cash Provided by (Used in) Operating Activities $ 169,058 $ 355,838 $( 1,637) $ 523,259 $ 169,395 Delete $ - $ - $ - $ - $ - The accompanying notes are an integral part of these financial statements. - 17 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A. Reporting Entity - The City of Durand, Michigan (the City ), was incorporated March 14, 1932, under the provisions of Act 279, PA 1909, as amended (Home Rule City Act). The City operates under a Council-Manager form of government and provides the following services as authorized by its charter: public safety (police, fire and inspection), highways and streets, sanitation, community development, culture-recreation, public improvements, planning and zoning, water supply and sewage disposal systems, and general administrative services. These financial statements present the City and its component unit, an entity for which the City is considered to be financially accountable. The discretely presented component unit is reported in a separate column in the government-wide financial statements to emphasize that it is legally separate from the City. DISCRETELY PRESENTED COMPONENT UNIT - Downtown Development Authority (DDA) - The Downtown Development Authority (DDA) was established in 1991. The DDA is organized under P.A. 197, of 1975. The purpose of the DDA is to revitalize and prevent deterioration of the central business district, to encourage historic preservation, authorize the acquisition and disposal of interests in real and personal property, seek out and attract new business interest, authorize the creation and implementation of redevelopment plans in the district, promote economic growth of the district and implement programs to eliminate the further decline of properties and their values in the district. The DDA is reported discretely to emphasize that it is legally separate from the City. The DDA Board is comprised of up to thirteen members and one ex-officio member appointed by the Mayor with City Council s approval. The DDA is responsible for the creation of a development and financing plan for the downtown district or a development area within the district to promote economic growth. The DDA must obtain City Council approval of all development and financing plans. The annual operating budget and any modifications also require the approval of the Durand City Council. Related Organizations - The Durand Union Station, Inc. (a nonprofit 501(c)(3) corporation), was organized for the development and operation and maintenance of the Durand Union Station. The Durand Union Station is owned by the City and is designated a historical landmark which is also in the State of Michigan Railroad History Museum. Although the building is owned by the City, the financial statements of the Durand Union Station, Inc. (DUSI) are not included in the City s financial statements since the City Council is not fiscally responsible for the operations and the City appoints only two (2) of a minimum of seven (7) board members and therefore does not have control of the organization. - 18 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont'd): B. Government-wide and Fund Financial Statements - The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation - The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year they are due. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Agency funds, a type of fiduciary fund, are unlike all other types of funds, reporting only assets and liabilities. Agency funds do not have a measurement focus. They do, however, use the accrual basis of accounting to recognize receivables and payables. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, are recorded only when payment is due. - 19 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont'd): State shared revenue, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and therefore have been recognized as revenues of the current fiscal period. Property taxes, which are levied on July 1, and payable at that time, are recognized as revenue in the year due. All other revenue items are considered to be measurable and available only when cash is received by the City. The City reports the following major governmental funds: General Fund - is the City s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. Major Street Fund - is a special revenue fund used to account for Act 51 money and other related revenues restricted for major street maintenance and improvements. Street Fund - is a special revenue fund used to account for a tax millage and other related revenues restricted for streets maintenance and improvements. The City reports the following major proprietary funds: Water Fund - is used to account for the treatment and distribution of water to residential and commercial users. Wastewater Fund - is used to account for sanitary sewer services provided to the residential and commercial users. Refuse Service Fund - is used to account for the operations and activities of garbage collection and recycling for residential customers within the City. Additionally, the City reports the following fund types - Governmental Fund Type - Special Revenue Funds - are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditures for specified purposes other than debt services or capital projects. Debt Service Funds - are used to account for and report financial resources that are restricted or committed to expenditures for principal and interest on debt. Capital Projects Funds - are used to account for and report financial resources that are restricted, committed or assigned to expenditures for capital outlay including the acquisition or construction of capital facilities and other capital assets. Proprietary Fund Type - Internal Service Funds - are used to account for the costs of operating and maintaining the City s equipment and for charging the costs of fringes to the various funds. Charges are made to other funds based on equipment used and fringes provided. - 20 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont'd): Proprietary funds distinguish operating revenue and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary funds principle on-going operations. The principle operating revenues of the enterprise and internal services funds are charges to customers for sales and services. Operating expenses from enterprise and internal service funds include costs of sales and services, administrative expense, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the City s policy to use restricted resources first then unrestricted resources as they are needed. D. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance - Deposits and Investments - The City s cash and cash equivalents are considered to be cash on hand and demand deposits. The investment pools have the general characteristics of demand deposit accounts in that the City may deposit additional cash at any time and effectively may withdraw cash at any time without prior notice or penalty, and are reported as cash and cash equivalents. Investments are stated at fair value; which is determined as follows: (a) short-term investments are reported at cost, which approximates fair value; (b) securities traded on national or international exchanges are valued at the last reported sales price at current exchange rates; (c) investments that do not have established market values are reported at estimated fair value; and (d) cash deposits are reported at carrying amount which reasonably approximates fair value. State statutes authorize the City to deposit in the accounts of federally insured banks, credit unions, and savings and loan associations, and to invest in obligations of the U.S. Treasury, certain commercial paper, repurchase agreements, bankers acceptances, and mutual funds composed of otherwise legal investments (except those with a fluctuating per share value). Receivables and Payables - Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either due to/from other funds (i.e., the current portion of interfund loans) or advances to/from other funds (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as due to/from other funds. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as internal balances. Advances between funds, as reported in the fund financial statements, are reported as nonspendable to indicate that they are not available for appropriation and are not expendable available financial resources. - 21 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont'd): Property Tax Receivables - All delinquent real property taxes, utility charges and special assessments become liens against the related property and are reimbursed by Shiawassee County s Delinquent Tax Revolving Fund. Shiawassee County will, however, charge back to the City any amounts not collected at the end of three years. Inventories and Prepaid Items - All inventories are valued at cost using the first in/first out (FIFO) method. Inventories of governmental funds, except DPW supplies, are recorded as expenditures when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. Property Tax Calendar - Taxes are levied on July 1 (the lien date) based on the taxable value of property located in the City as of the preceding December 31 and are payable at that time. The City bills and collects its own property taxes and also collects taxes for Shiawassee County, intermediate school district, community college, library and local school district. Collections of all taxes other than City taxes and the remittance of them are accounted for in the Tax Collection Fund. The City is permitted by state statute to levy taxes of 16.5304 mills for general governmental services other than the payment of principal and interest on long-term debt and in unlimited amounts for the payment of principal and interest on long-term debt. The City levied 16.5304 mills for general governmental purposes plus 4.2000 mills for debt service, 2.0000 mills for streets, 1.1750 mills for ambulance services, and.2500 for public transportation. Capital Assets - Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or businesstype activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $2,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. As permitted by Governmental Accounting Standards Board (GASB) Statement No. 34, the City has elected not to report governmental infrastructure (principally roads and sidewalks) acquired prior to July 1, 2003. - 22 -